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The Competition Commission of India approves the proposed combination for the acquisition of a stake in SK Finance Limited by India Business Excellence Fund IV. The fund acquires five point thirty-one percent of the issued and paid-up share capital of the target through a subscription of shares and a purchase of shares from existing shareholders. The combined market shares of the parties remain negligible in the relevant markets. The order stands revoked if the information provided by the acquirer is found to be incorrect at any time.
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COMPETITION COMMISSION OF INDIA Combination Registration No.C-2023/08/1052
31st October 2023
Notice under Section 6(2) of the Competition Act, 2002 filed by India Business Excellence Fund IV
CORAM:
Ms. Ravneet Kaur Chairperson
Mr. Anil Agrawal Member
Ms. Sweta Kakkad Member
Mr. Deepak Anurag Member
Order under Section 31(1) of the Competition Act, 2002
On 30th August 2023, the Competition Commission of India (Commission) received a notice under sub-section (2) of Section 6 of the Competition Act, 2002 (Act) filed by India Business Excellence Fund IV (IBEF IV/Acquirer) acting through its investment manager MO Alternate Investment Advisors Private Limited (MO Alts) for the proposed acquisition of stake in SK Finance Limited (SK Finance/Target) [Hereinafter, the Acquirer and Target are collectively referred to as ‘Parties’].
The notice has been filed pursuant to Share Subscription Agreement (SSA) dated 28th August 2023 entered inter alia amongst the Acquirer, the Target and Mr. Rajendra Kumar Setia, the promoter of Target (Promoter) and Share Purchase Agreement (SPA), dated 28th August 2023 entered inter alia amongst the Acquirer, Baring Private Equity India AIF (Seller 1), the Promoter (Seller 2) [Seller 1 and Seller 2, together, the Sellers] and the Target. The Parties, the Sellers and certain other shareholders of Target will also enter into a Shareholders’ Agreement (SHA).
The proposed combination envisages the acquisition of equity shares by the Acquirer constituting 5.31% of the issued and paid-up share capital of the Target on a fully diluted basis. Such acquisition of equity shares by the Acquirer will be by way of subscription of equity shares constituting 2.88% of the issued and paid-up share capital of the Target and purchase of equity shares constituting 2.43% of the issued and paid-up share capital of the Target, on a fully diluted basis, from certain existing shareholders of the Target [Proposed Combination].
In terms of Regulation 14 of Competition Commission of India (Procedure in regard to the transaction of business relating to combinations) Regulations, 2011, the Commission, vide communications dated 18.09.2023 and 11.10.2023, sought certain information(s)/clarification(s), inter alia, relating to the activities of the Parties and the response to the same was received on 27.09.2023 and 17.10.2023.
The Acquirer is a scheme of Business Excellence Trust IV, a trust set up under the Indian Trusts Act, 1882, and is registered with the Securities and Exchange Board of India as a Category II Alternative Investment Fund, whose trustee is Vistra ITCL (India) Limited. The Acquirer is a fund managed by MO Alts, which is a part of the Motilal Oswal Group. The Acquirer primarily invests in equity and equity-linked instruments and/or debt and/or mezzanine or other instruments of Indian or India-related companies in India. It is a sector-agnostic fund, providing growth capital to mid-sized companies. The Acquirer does not conduct any business operations worldwide outside of India.
MO Alts, the investment manager of the Acquirer, is a wholly owned subsidiary of Motilal Oswal Financial Services Limited (MOFSL), the parent company of the Motilal Oswal Group. MO Alts, also manages/advises other schemes including India Business Excellence Fund II, India Business Excellence Fund IIA and India Business Excellence Fund III, which follow a similar investment strategy to the Acquirer. MO Alts also manages the following real estate funds: (i) India Realty Excellence Fund II LLP, (ii) India Realty Excellence Fund III, (iii) India Realty Excellence Fund IV and (iv) India Realty Excellence Fund V. These real estate funds provide mezzanine/structured credit solutions to established developers who are focused on mid-income housing at established locations. However, the real estate funds do not make any direct equity investments. MO Alts does not conduct any business operations outside of India.
The Motilal Oswal Group is a diversified financial services provider with products/services such as retail and institutional broking, private wealth management, investment banking, lending, private equity, asset management and home finance. The parent company of the Motilal Oswal Group is MOFSL.
MOFSL is an integrated technology-based financial services sector organization incorporated in India offering a wide range of services including retail and institutional broking, financial products distribution. MOFSL executes transactions in capital markets/equity derivatives/commodity derivatives/currency derivatives segments on behalf of its clients which include retail customers (including high net worth individuals), mutual funds, institutional investors, foreign institutional investors, financial institutions and corporate clients. Besides stockbroking, it also offers a bouquet of financial products and services like insurance, mutual funds, bonds etc. to its client base. MOFSL is also registered with the Securities and Exchange Board of India as Research Analyst, and with various other bodies/agencies in India like IRDA, AMFI, CERSAI, KRA agencies (CVL, Dotex, NDML, CAMS and Karvy) etc. MOFSL has certain subsidiaries$^1$ incorporated outside India. These entities primarily act as a broker, dealer or distributor for MOFSL and help in garnering orders and distributing research reports pertaining to the Indian markets in the international market.
The Target is an unlisted public limited company incorporated and registered under the laws of India. Further, the Target is a non-banking finance company (NBFC) registered with the Reserve Bank of India (RBI) as a Non-Banking Non-Deposit Taking Systemically Important Asset Finance Company. The Target does not have any holding company or any subsidiary/ subsidiaries or affiliates and does not belong to any group. In India, the Target is engaged in the business of providing finance in the following segments: (i) Vehicle financing (new and used), and (ii) Lending to micro, small and medium enterprises (MSME). As part of its vehicle financing activities, Target provides loans for acquisition of commercial vehicles, cars, two wheelers and tractors. In its MSME lending business, Target’s customers are largely small retail business owners. The Target does not have any business operations outside India.
It is submitted in the notice that while the Acquirer does not carry out any activities, the activities of an affiliate of the Acquirer’s investment manager i.e., Motilal Oswal Home Finance Limited (a subsidiary of MOFSL) and the activities of the portfolio companies of the Acquirer i.e., IKF Finance Limited and Shubham Housing Development Finance Company Limited, overlap with Target’s activities. At the broadest level, the activities of the Parties exhibit horizontal overlap in the market for provision of loans and lending services and, at a narrow level, in the market for provision of retail loans. At a narrower level, the activities of the Parties exhibit horizontal overlap in: (a) market for provision of loans to MSMEs and its sub-segment i.e., market for provision of home improvement mortgage loans; and (b) market for provision of vehicle loans and its sub-segments i.e., markets for: (i) provision of two-wheeler loans, (ii) provision of four-wheeler passenger car loans and (iii) provision of commercial vehicle loans which may further be segmented into market for construction equipment loans. The geographic scope of the relevant product markets identified above may be considered as the whole of India.
Based on above, the Parties have provided competition assessment for the following relevant markets: (i) the market for provision of loans and lending services in India (Loans Market/ Broad Relevant Market); (ii) the market for provision of retail loans in India (Retail Loans Market/Narrow Market) and its segments: (a) the market for provision of loans to MSMEs in India (MSME Loans Segment/Narrower Relevant Market 1) and its sub-segment i.e., market for provision of home improvement mortgage loans in India; and (b) the market for provision of vehicle loans in India (Vehicle Loans Segment/Narrower Relevant Market 2) and its sub-segments i.e., markets for (i) provision of two-wheeler loans in India; (ii) provision of four-wheeler passenger car loans in India; and (iii) provision of commercial vehicle loans in India, which may further be segmented into market for provision of construction equipment loans in India [The Narrower Relevant Market 1 and Narrower Relevant Market 2, are collectively referred to as the ‘Narrower Markets’. Further, the Broad Relevant Market, the Narrow Relevant Market, and the Narrower Relevant Markets along with their segments and sub-segments are collectively referred to as the ‘Relevant Markets’].
The Commission decided to assess the Proposed Combination in the relevant markets identified by the Parties. However, exact delineation of the relevant market has been left open.
Based on the submissions of the Parties, it is noted that the combined market shares and the incremental market shares of the Parties in the Relevant Markets are negligible being in the range of [0-5] %. Further, there are other players present in the each of the markets including (i) Scheduled Commercial Banks such as State Bank of India, ICICI, Axis Bank, HDFC Bank, IndusInd Bank (ii) Small Finance Banks (SFB) such as Utkarsh SFB, Ujjivan SFB, Equitas SFB, Suryoday SFB, AU SFB, and (ii) other NBFCs such as TVS Credit, Poonawalla Finance, HDB Financial Services, Cholamandalam Investment, Mahindra & Mahindra Finance and Shriram Finance Company amongst others, who will continue to pose competitive constraints to the Parties post the Proposed Combination.
Considering the material on record, including details provided in the notice given under sub-section (2) of Section 6 of the Act and assessment of the combination based on the factors stated in sub-section (4) of Section 20 of the Act, the Commission is of the opinion that the Proposed Combination is not likely to have any appreciable adverse effect on competition in India in any of the relevant market(s), and therefore, the Commission approves the same under Section 31(1) of the Act.
This order may stand revoked if, at any time, the information provided by the Acquirer is found to be incorrect.
The information provided by the Acquirer shall be treated as confidential in terms of and subject to provisions of Section 57 of the Act.
The Secretary is directed to communicate to the Acquirer accordingly.
